Japan household financial net worth hits record high

Nikko Asset Management’s (Nikko AM’s) latest research shows that Abenomics is exceeding its targets and consensus expectations on the road to reform. As such, it says, Prime Minister Shinzo Abe’s ‘Three Arrows’ policy is providing a clear boost to Japan’s household finances.

Since Mr. Abe’s appointment, asset prices in Japan have surged, says Nikko AM, leading to rising consumer and business confidence, a key indicator of economic growth. As a result, more than 71 trillion yen (US$720 billion) of household financial net worth (excluding real estate) has been created in the 12 months up to June 2013, leading to a total of 1.2 quadrillion yen in net financial assets – a record high in Japan.

“The ‘Abenomics Wealth Effect’ has started to play a key role in Japan’s economy,” said John F Vail, chief global strategist at Nikko AM’s Tokyo head office. “When asset prices are rising, consumer confidence clearly rises with it. In our view, Japan’s economy and its tax revenues have been given a clear boost with Abe’s ‘Three Arrows’ and we expect the forthcoming economic and regulatory reforms to provide a further uplift to Japan’s investment markets.”

In addition, Nikko AM is monitoring Japan’s inflation numbers closely. Japan’s core consumer price index (CPI) excludes fresh food, while an unofficial measure called ‘core-core CPI’ excludes all food and energy. Nikko AM has adjusted the core-core CPI forecast to allow for the VAT hike due in April 2014 (which the firm believes is not truly durable inflation), to arrive at what it calls ‘triple core CPI’.

Core-core CPI will match triple core CPI through to March 2014, says Nikko AM, though it believes the figure will move close to 2% year-on-year thereafter, as the VAT hike will affect nearly all of the components in the core-core CPI basket. The firm expects triple core CPI to hit 1% year-on-year by December 2014, driven mainly by the housing component. While housing costs are difficult to predict, anecdotal evidence suggests that rents are starting to firm in Tokyo and will likely soon do so in other cities.